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Altisource Announces First Quarter 2019 Financial Results

April 25, 2019 6:54 AM

First Quarter 2019

LUXEMBOURG, April 25, 2019 (GLOBE NEWSWIRE) -- Altisource Portfolio Solutions S.A. (“Altisource” or the “Company”) (NASDAQ: ASPS), a leading provider and marketplace for the real estate and mortgage industries, today reported financial results for the first quarter 2019.

“I’m pleased with our solid first quarter performance. Operationally, we have streamlined our organization, are focusing on our larger opportunities, and seeing the results through our financial performance. First quarter 2019 adjusted operating income was 10% higher than the first quarter 2018 and marks the third straight quarter of adjusted operating income growth compared to the same quarter in the prior year. To focus on our larger opportunities, last year we sold the property management business and announced that we are exiting the buy-renovate-lease-sell business. Recently, we entered into an agreement to sell our Financial Services business for $44 million, $40 million of which will be received at closing and the remaining $4 million on the one year anniversary of closing. We anticipate this sale to close before the end of the third quarter 2019 and plan to use the proceeds to reduce our debt,” said Chief Executive Officer William B. Shepro.

Mr. Shepro further commented, “On the business front, we are making excellent progress with new and existing customers. With Hubzu, we are winning new business and diversifying our customer base as demonstrated by our growing inventory of foreclosure auctions and homes for sale from customers other than Ocwen, NRZ and RESI. As of March 31, 2019, Hubzu inventory from these other customers has grown by 116% over March 31, 2018 and represented 26% of total inventory at the end of the quarter compared to 10% a year ago. With Field Services, we have largely completed the on-boarding process with a top-5 servicer customer and anticipate receiving referrals as one of three of its vendors in the third quarter 2019. We also continue to develop our sales pipeline and have promising opportunities.”

First quarter 2019 service revenue of $165.0 million was 13% lower than the first quarter 2018, primarily from the reduction in size of the Ocwen Financial Corporation (“Ocwen”) servicing portfolio and the Front Yard Residential Corporation (“RESI”) portfolio of non-performing loans and real estate owned and the impact of the higher cooperative brokerage commission to New Residential Corp. (“NRZ”). These decreases in service revenue were partially offset by service revenue growth from greater referral volumes of certain higher fee property preservation services in the Field Services business and growth in the earlier stage Owners.com® and Pointillist® businesses.

First quarter 2019 operating income of $0.2 million was 98% lower than the first quarter 2018, primarily from the impact of revenue declines discussed above, $4.4 million of restructuring charges related to Project Catalyst, a $2.1 million reserve for sales tax and higher intangible asset amortization during the first quarter 2019, partially offset by the benefits of Project Catalyst.

First quarter 2019 adjusted operating income(1) of $18.1 million was 10% higher than the first quarter 2018, primarily from margin expansion from the benefits of Project Catalyst, partially offset by the impact of revenue declines discussed above. First quarter 2019 adjusted operating income(1) as a percentage of service revenue was 11.0% compared to 8.7% during the first quarter 2018.

First quarter 2019 loss per share of $(0.20) improved compared to first quarter 2018 loss per share of $(0.24) from fewer shares outstanding and unrealized gains on marketable securities (unrealized loss in 2018), partially offset by higher interest expense from higher average interest rates on a lower debt balance and a higher effective income tax rate.

First quarter 2019 adjusted earnings per share(1) of $0.48 was the same as the first quarter 2018 of $0.48 from adjusted operating income margin expansion and fewer diluted shares outstanding, offset by higher interest expense from higher average interest rates on a lower debt balance and a higher effective income tax rate.

First Quarter 2019 Highlights(2)

First Quarter 2019 Results Compared to the First Quarter 2018:

(in thousands, except per share data)First Quarter 2019 First Quarter 2018 %
Change
Service revenue$164,999 $188,766 (13)
Income from operations171 7,120 (98)
Adjusted operating income(1)18,116 16,468 10
Loss before income taxes and non-controlling interests(3,966) (4,972) (20)
Pretax loss attributable to Altisource(1)(4,406) (5,497) (20)
Adjusted pretax income attributable to Altisource(1)11,301 11,352 —
Net loss attributable to Altisource(3,184) (4,132) (23)
Adjusted net income attributable to Altisource(1)8,005 8,601 (7)
Diluted loss per share(0.20) (0.24) (17)
Adjusted diluted earnings per share(1) 0.48 0.48 —
Cash flows from operating activities(6,655) (8,569) (22)
Adjusted cash flows from operating activities(1)604 1,346 (55)
Adjusted cash flows from operating activities less additions for
premises and equipment(1)		(186) 88 (311)

(1) This is a non-GAAP measure that is defined and reconciled to the corresponding GAAP measure herein.
(2) Applies to the first quarter 2019 unless otherwise indicated.

Forward-Looking Statements

This press release contains forward-looking statements that involve a number of risks and uncertainties. These forward-looking statements include all statements that are not historical fact, including statements about management’s beliefs and expectations. These statements may be identified by words such as “anticipate,” “intend,” “expect,” “may,” “could,” “should,” “would,” “plan,” “estimate,” “seek,” “believe,” “potential” and similar expressions. Forward-looking statements are based on management’s beliefs as well as assumptions made by and information currently available to management. Because such statements are based on expectations as to the future and are not statements of historical fact, actual results may differ materially from what is contemplated by the forward-looking statements. Altisource does not undertake, and expressly disclaims, any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. The risks and uncertainties to which forward-looking statements are subject include, but are not limited to, our ability to retain existing customers and attract new customers and the potential for changes in our customer relationships; various risks relating to our ability to effectively manage our regulatory and contractual obligations; the adequacy of our financial resources, including our sources of liquidity and ability to repay borrowings and comply with our Credit Agreement, including the financial and other covenants contained therein; as well as Altisource’s ability to retain key executives or employees, general economic and market conditions, behavior of customers, suppliers and/or competitors, technological developments, governmental regulations, taxes and policies, and other risks and uncertainties detailed in the “Forward-Looking Statements,” “Risk Factors” and other sections of Altisource’s Form 10-K and other filings with the Securities and Exchange Commission.

Webcast

Altisource will host a webcast at 8:30 a.m. EDT today to discuss our first quarter. A link to the live audio webcast will be available on Altisource’s website in the Investor Relations section. Those who want to listen to the call should go to the website at least fifteen minutes prior to the call to register, download and install any necessary audio software. A replay of the conference call will be available via the website approximately two hours after the conclusion of the call and will remain available for approximately 30 days.

About Altisource

Altisource Portfolio Solutions S.A. is an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing markets we serve. Additional information is available at www.Altisource.com.

FOR FURTHER INFORMATION CONTACT:
Michelle D. Esterman
Chief Financial Officer
T: (770) 612-7007
E: [email protected]


ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share data)
(unaudited)

Three months ended
March 31,
2019 2018
Service revenue $164,999 $188,766
Reimbursable expenses 4,496 8,147
Non-controlling interests 440 525
Total revenue 169,935 197,438
Cost of revenue 119,608 139,047
Reimbursable expenses 4,496 8,147
Gross profit 45,831 50,244
Operating expenses:
Selling, general and administrative expenses 41,240 43,124
Restructuring charges 4,420 —
Income from operations 171 7,120
Other income (expense), net
Interest expense (6,749) (5,863)
Unrealized gain (loss) on investment in equity securities 2,238 (7,501)
Other income (expense), net 374 1,272
Total other income (expense), net (4,137) (12,092)
Loss before income taxes and non-controlling interests (3,966) (4,972)
Income tax benefit 1,222 1,365
Net loss (2,744) (3,607)
Net income attributable to non-controlling interests (440) (525)
Net loss attributable to Altisource $(3,184) $(4,132)
Loss per share:
Basic $(0.20) $(0.24)
Diluted $(0.20) $(0.24)
Weighted average shares outstanding:
Basic 16,292 17,378
Diluted 16,292 17,378
Comprehensive loss:
Net loss $(2,744) $(3,607)
Other comprehensive loss, net of tax:
Reclassification of unrealized gain on investment in equity securities,
net of income tax provision of $200, to retained earnings from the
cumulative effect of an accounting change		 — (733)
Comprehensive loss, net of tax (2,744) (4,340)
Comprehensive income attributable to non-controlling interests (440) (525)
Comprehensive loss attributable to Altisource $(3,184) $(4,865)

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)

March 31,
2019		 December 31,
2018
ASSETS
Current assets:
Cash and cash equivalents$51,509 $58,294
Investment in equity securities38,419 36,181
Accounts receivable, net28,634 36,466
Short-term investments in real estate40,274 39,873
Assets held for sale26,557 —
Prepaid expenses and other current assets29,292 30,720
Total current assets214,685 201,534
Premises and equipment, net74,991 45,631
Goodwill79,009 81,387
Intangible assets, net72,160 91,653
Deferred tax assets, net308,509 309,089
Other assets10,194 12,406
Total assets$759,548 $741,700
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses$64,538 $87,240
Current portion of long-term debt9,222 —
Deferred revenue7,597 10,108
Liabilities held for sale8,736 —
Other current liabilities20,743 7,030
Total current liabilities110,836 104,378
Long-term debt, less current portion322,577 331,476
Other non-current liabilities30,767 9,178
Commitments, contingencies and regulatory matters
Equity:
Common stock ($1.00 par value; 100,000 shares authorized, 25,413 issued and 16,309
outstanding as of March 31, 2019; 16,276 outstanding as of December 31, 2018)		25,413 25,413
Additional paid-in capital125,288 122,667
Retained earnings584,759 590,655
Treasury stock, at cost (9,104 shares as of March 31, 2019 and 9,137 shares as of
December 31, 2018)		(441,149) (443,304)
Altisource equity294,311 295,431
Non-controlling interests1,057 1,237
Total equity295,368 296,668
Total liabilities and equity$759,548 $741,700

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Three months ended
March 31,
2019 2018
Cash flows from operating activities:
Net loss$(2,744) $(3,607)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization9,369 8,721
Amortization of intangible assets8,647 7,147
Unrealized (gain) loss on investment in equity securities(2,238) 7,501
Share-based compensation expense2,621 2,201
Bad debt expense155 724
Amortization of debt discount153 89
Amortization of debt issuance costs170 273
Deferred income taxes582 (1,972)
Loss on disposal of fixed assets331 489
Changes in operating assets and liabilities (excludes assets and liabilities held for sale):
Accounts receivable1,091 2,289
Short-term investments in real estate(401) (9,915)
Prepaid expenses and other current assets(781) 702
Other assets(92) 481
Accounts payable and accrued expenses(16,318) (18,189)
Other current and non-current liabilities(7,200) (5,503)
Net cash used in operating activities(6,655) (8,569)
Cash flows from investing activities:
Additions to premises and equipment(790) (1,258)
Net cash used in investing activities(790) (1,258)
Cash flows from financing activities:
Repayments and repurchases of long-term debt— (1,486)
Debt issuance costs— (496)
Proceeds from stock option exercises28 2,617
Purchase of treasury shares— (9,994)
Distributions to non-controlling interests(620) (672)
Payments of tax withholding on issuance of restricted share units and restricted shares(585) —
Net cash used in financing activities(1,177) (10,031)
Net decrease in cash, cash equivalents and restricted cash(8,622) (19,858)
Cash, cash equivalents and restricted cash at the beginning of the period64,046 108,843
Cash, cash equivalents and restricted cash at the end of the period$55,424 $88,985
Supplemental cash flow information:
Interest paid$5,634 $5,269
Income taxes paid, net2,410 946
Non-cash investing and financing activities:
Increase in payables for purchases of premises and equipment$28 $264
Acquisition of right-to-use assets with lease obligations209 —

ALTISOURCE PORTFOLIO SOLUTIONS S.A.
NON-GAAP MEASURES
(in thousands, except per share data)
(unaudited)

Adjusted operating income, pretax income attributable to Altisource, adjusted pretax income attributable to Altisource, adjusted net income attributable to Altisource, adjusted diluted earnings per share, adjusted cash flows from operating activities, adjusted cash flows from operating activities less additions to premises and equipment and net debt less investment in equity securities, which are presented elsewhere in this earnings release, are non-GAAP measures used by management, existing shareholders, potential shareholders and other users of our financial information to measure Altisource’s performance and do not purport to be alternatives to income from operations, loss before income taxes and non-controlling interests, net loss attributable to Altisource, diluted loss per share, cash flows from operating activities and long-term debt, including current portion, as measures of Altisource’s performance. We believe these measures are useful to management, existing shareholders, potential shareholders and other users of our financial information in evaluating operating profitability and cash flow generation more on the basis of continuing cost and cash flows as they exclude amortization expense related to acquisitions that occurred in prior periods and non-cash share-based compensation, as well as the effect of more significant non-operational items from earnings, cash flows from operating activities and long-term debt net of cash on-hand and investment in equity securities. We believe these measures are also useful in evaluating the effectiveness of our operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. Furthermore, we believe the exclusion of more significant non-operational items enables comparability to prior period performance and trend analysis.

It is management’s intent to provide non-GAAP financial information to enhance the understanding of Altisource’s GAAP financial information, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure is presented along with the corresponding GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies. The non-GAAP financial information should not be unduly relied upon.

Adjusted operating income is calculated by removing intangible asset amortization expense, share-based compensation expense, sales tax accrual, restructuring charges and other asset write-off from business exit from income from operations. Pretax loss attributable to Altisource is calculated by removing non-controlling interests from loss before income taxes and non-controlling interests. Adjusted pretax income attributable to Altisource is calculated by removing non-controlling interests, intangible asset amortization expense, share-based compensation expense, sales tax accrual, restructuring charges, other asset write-off from business exit and unrealized (loss) gain on investment in equity securities from loss before income taxes and non-controlling interests. Adjusted net income attributable to Altisource is calculated by removing intangible asset amortization expense (net of tax), share-based compensation expense (net of tax), sales tax accrual (net of tax), restructuring charges (net of tax), other asset write-off from business exit (net of tax) and unrealized (loss) gain on investment in equity securities (net of tax) from net loss attributable to Altisource. Adjusted diluted earnings per share is calculated by dividing net loss attributable to Altisource after removing intangible asset amortization expense (net of tax), share-based compensation expense (net of tax), sales tax accrual (net of tax), restructuring charges (net of tax), other asset write-off from business exit (net of tax) and unrealized (loss) gain on investment in equity securities (net of tax) by the weighted average number of diluted shares. Adjusted cash flows from operating activities is calculated by removing the increase in short-term investments in real estate and payment of sales tax accrual from cash flows from operating activities. Adjusted cash flows from operating activities less additions to premises and equipment is calculated by removing the increase in short-term investments in real estate, payment of sales tax accrual and additions to premises and equipment from cash flows from operating activities. Net debt less investment in equity securities is calculated as long-term debt, including current portion, minus cash and cash equivalents and investment in equity securities.

Reconciliations of the non-GAAP measures to the corresponding GAAP measures are as follows:

Three months ended
March 31,
2019 2018
Income from operations$171 $7,120
Intangible asset amortization expense8,647 7,147
Share-based compensation expense2,621 2,201
Sales tax accrual2,053 —
Restructuring charges4,420 —
Other asset write-off from business exit204 —
Adjusted operating income$18,116 $16,468
Loss before income taxes and non-controlling interests$(3,966) $(4,972)
Non-controlling interests(440) (525)
Pretax loss attributable to Altisource(4,406) (5,497)
Intangible asset amortization expense8,647 7,147
Share-based compensation expense2,621 2,201
Sales tax accrual2,053 —
Restructuring charges4,420 —
Other asset write-off from business exit204 —
Unrealized (gain) loss on investment in equity securities(2,238) 7,501
Adjusted pretax income attributable to Altisource$11,301 $11,352
Net loss attributable to Altisource$(3,184) $(4,132)
Intangible asset amortization expense, net of tax5,983 5,491
Share-based compensation expense, net of tax1,813 1,691
Sales tax accrual, net of tax1,519 —
Restructuring charges, net of tax3,379 —
Other asset write-off from business exit, net of tax151 —
Unrealized (gain) loss on investment in equity securities, net of tax(1,656) 5,551
Adjusted net income attributable to Altisource$8,005 $8,601
Diluted loss per share$(0.20) $(0.24)
Impact of using diluted share count instead of basic share count
for a loss per share		0.01 0.01
Intangible asset amortization expense, net of tax, per diluted share0.36 0.31
Share-based compensation expense, net of tax, per diluted share0.11 0.09
Sales tax accrual, net of tax, per diluted share0.09 —
Restructuring charges, net of tax, per diluted share0.20 —
Other asset write-off from business exit, net of tax, per diluted share0.01 —
Unrealized (gain) loss on investment in equity securities, net of tax,
per diluted share		(0.10) 0.31
Adjusted diluted earnings per share$0.48 $0.48
Calculation of the impact of intangible asset amortization expense,
net of tax
Intangible asset amortization expense$8,647 $7,147
Tax benefit from intangible asset amortization(2,664) (1,656)
Intangible asset amortization expense, net of tax5,983 5,491
Diluted share count16,638 17,881
Intangible asset amortization expense, net of tax, per diluted share$0.36 $0.31
Calculation of the impact of share-based compensation expense,
net of tax
Share-based compensation expense$2,621 $2,201
Tax benefit from share-based compensation expense(808) (510)
Share-based compensation expense, net of tax1,813 1,691
Diluted share count16,638 17,881
Share-based compensation expense, net of tax, per diluted share$0.11 $0.09
Calculation of the impact of sales tax accrual, net of tax
Sales tax accrual$2,053 $—
Tax benefit from sales tax accrual(534) —
Sales tax accrual, net of tax1,519 —
Diluted share count16,638 17,881
Sales tax accrual, net of tax, per diluted share$0.09 $—
Calculation of the impact of restructuring charges, net of tax
Restructuring charges$4,420 $—
Tax benefit from restructuring charges(1,041) —
Restructuring charges, net of tax3,379 —
Diluted share count16,638 17,881
Restructuring charges, net of tax, per diluted share$0.20 $—
Calculation of the impact of other asset write-off from business exit, net of tax
Other asset write-off from business exit$204 $—
Tax benefit from other asset write-off from business exit(53) —
Other asset write-off from business exit, net of tax151 —
Diluted share count16,638 17,881
Other asset write-off from business exit, net of tax, per diluted share$0.01 $—
Calculation of the impact of the unrealized (gain) loss on investment
in equity securities, net of tax
Unrealized (gain) loss on investment in equity securities$(2,238) $7,501
Tax provision (benefit) from the unrealized (gain) loss on investment
in equity securities		582 (1,950)
Unrealized (gain) loss on investment in equity securities, net of tax(1,656) 5,551
Diluted share count16,638 17,881
Unrealized (gain) loss on investment in equity securities, net of tax,
per diluted share		$(0.10) $0.31
Cash flows from operating activities$(6,655) $(8,569)
Increase in short-term investments in real estate401 9,915
Payment of sales tax accrual6,858 —
Adjusted cash flows from operating activities604 1,346
Less additions to premises and equipment(790) (1,258)
Adjusted cash flows from operating activities less additions
to premises and equipment		$(186) $88


March 31, 2019 March 31, 2018
Senior secured term loan$338,822 $412,095
Less: Cash and cash equivalents(51,509) (84,850)
Less: Investment in equity securities(38,419) (41,652)
Net debt less investment in equity securities$248,894 $285,593

Note: Amounts may not add to the total due to rounding.

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